Nikkei Japan Manufacturing PMI
October survey data indicated that Japan’s goods producing sector began the final quarter of 2018 in growth territory, with the key measures of macroeconomic health (output, new orders and employment) all showing stronger rates of increase. New export sales also returned to growth following a recent soft patch in international demand. Prices data pointed to a sharper rate of input cost inflation, prompting firms to raise output prices to the greatest extent for ten years. Input delivery times were hampered by strong sales performances encouraging higher buying activity.
The headline Nikkei Japan Manufacturing Purchasing Managers’ IndexTM (PMI)®—a composite single-figure indicator of manufacturing performance—increased from 52.5 in September to 52.9 in October, therefore indicating a faster rate of improvement. Moreover, it was the strongest expansion since June, albeit only moderate overall.
Underpinning the latest improvement in business conditions was sharper output growth, following September’s 14-month low. According to panelists, production levels were supported by healthy inflows of new work. There were some reports that output was raised to cover for shortfalls resulting from adverse weather conditions in September.
Survey data pointed to robust demand conditions at Japanese manufacturers in October. Moreover, the rate of new order growth was relatively solid and quickened to a four-month high. Higher sales to new and existing clients in domestic and international markets, promotional work and new product launches all helped to drive the latest upturn. Data also indicated growth in demand from overseas clients for the first time since May.
Encouraged by order book volume growth, firms expanded staffing levels in October to boost operating capacities. The rate of job creation was solid and the strongest in six months. However, the level of incomplete work at Japanese manufacturers increased, despite greater employment. Delayed input deliveries and ongoing disruption from recent natural disasters weighed on capacity.
Amid reports from panellists of supply chain pressures, survey data indicated that average lead times for the delivery of inputs lengthened in October, extending the current period of deterioration to two-and-a-half years. While strong input demand was cited as one factor impacting vendor performance, logistical issues arising from the recent poor weather were also mentioned.
Firms were motivated to raise buying levels in October to accommodate for greater production requirements. Delayed input shipments and expectations of price increases encouraged manufacturers to stockpile some of these items, however. Input price inflation accelerated at the fastest pace since March 2011 amid higher metal and fuel costs. To offset profit margin erosion, output prices were increased at the fastest rate in ten years.
Looking ahead, the outlook towards output over the coming year was positive overall; however, the degree of optimism edged down to a 23-month low, with some firms projecting less supportive demand conditions.
Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:
“With PMI data for Q3 pointing to a slowdown in Japanese manufacturing sector growth momentum, a renewed acceleration at the beginning of the fourth quarter is welcome news, with the key macroeconomic health gauges of output, new orders and employment all growing at faster rates. A rebound in export sales is also a positive development given the backdrop of global trade woes.
“However, whether the upturn is the start of a new trend or a transitory response to September’s weather-impacted performance remains to be seen. Anecdotes suggest that supply chains were still suffering during October from the aftermath of natural disasters in the region.
“Nonetheless, with firms passing through input cost inflation to output prices, this suggests that manufacturers judge the short-term demand outlook to be robust enough to withstand purchasing power erosion.”
Nikkei Japan Manufacturing PMI is sponsored by NIKKEI
Nikkei is a media organization with newspaper publishing at its core. Our flagship daily newspaper, The Nikkei, has approximately two and a half million subscribers. Nikkei's multi-platform media distribution also includes online, broadcast and magazines.
Since our founding in 1876 as the Chugai Bukka Shimpo (Domestic and Foreign Prices News), we have consistently provided high-quality reporting while maintaining fairness and impartiality. The Nikkei brand has become synonymous with trustworthiness at home and abroad.
Nikkei Inc. offers a range of media platforms to satisfy the diverse needs of our readers. At the core of these services is The Nikkei which has a circulation of approximately two and a half million. Adding further depth to our offerings are our premium content and strong digital technology. The number of paying subscribers to the Nikkei Online Edition, which was launched in 2010, has surpassed 500,000. Our fee-based online services have one of the largest readerships in the world among newspaper publishers. Eight years after its creation, the online edition has evolved from a medium for providing news to readers into a tool that helps people advance their careers.
In 2013, we kicked off the Nikkei Asian Review, an English-language news service provided both online and as a weekly print magazine. The following year, we established an Editorial Headquarters for Asia in Bangkok to deepen our coverage of Asian economic news. In addition, we doubled the number of reporters stationed in Asia outside Japan. 2014 also saw the launch of Nikkei Group Asia Pte., a new company in Singapore tasked with spreading the Nikkei brand in the region. Our goal is to make Nikkei the leading media voice in Asia.
About IHS Markit
IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.
Purchasing Managers’ Index (PMI) surveys are now available for over 40 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends.